A Giant Dies, Another is Reborn: The Yahoo/Microsoft Partnership

Jul 29 2009, 11:35am CDT | by Robert Evans

Yahoo has been a major player in the search engine market almost since the beginning. Their share of the market has waned a lot in recent years, but they still kept a respectable portion (20%) out of Google's hands. Now Microsoft's and Yahoo have partnered up and Bing will be handling all of Yahoo's search needs. This deal will boost Yahoo's revenue substantially and give Bing the market share it needs to take the fight to Google's doorstep.

This 10 year agreement means a lot of money for Yahoo. They're estimated to rake in a mind-blowing 500 million dollars annually once the partnership is fully implemented. That's going to take about two years, a worthwhile wait for a deal this lucrative. Yahoo's yearly capital expenditure savings are expected to top 200 million and, all told, they should gain an 275 million in annual operating cashflow as a result of this arrangement.

This deal means big things for Microsoft's AdCenter self-service advertising platform, which will now handle self-serve advertising for both companies. Despite that, Yahoo definitely got the better end of the deal financially. They'll manage the worldwide relationship sales force for both corporations, and Microsoft has also agreed to pay them an acquisition fee equal to 88% of the search revenue generated by Yahoo sites over the first five years of the arrangement.

With this announcement, Microsoft's Bing is now officially a major competitor in the search engine arena. Theoretically, with Bing's market share added to Yahoo's, they now control nearly 30% of the market, leaving most of the remaining 70% to Google. We won't really have an idea of how large a chunk of the market Bing controls now until a month or two down the line, when things calm down and we get some accurate statistics.

What Microsoft needs to do now is push Bing as hard as they can over the next two months or so. If they can't show that they're stealing users from Google, or at least holding on to Yahoo users, they'll be in for a lot of trouble. Considering the losses Microsoft has already sustained this quarter, a disastrous showing in the face of such a formidable union could end up crippling the software giant for the foreseeable future.

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Robert Evans
The excitement about new smartphones, tablets and anything mobile drive Robert to unearth the latest rumors and developments in this fast moving space. He adopted 4G as soon as it become available and knows where the mobile market is going.
Robert can be contacted directly at robert@i4u.com.